Tag: Moodys

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Health

Moody’s on influence of Covid-led disruptions on India’s infrastructure corporations

Moody's on impact of Covid-led disruptions on India's infrastructure firms

A container ship has docked in the Indian Adani Port Special Economic Zone (APSEZ) in Mundra, India.

Sam Panthaky | AFP | Getty Images

India’s second wave of the coronavirus outbreak will affect the country’s infrastructure companies to varying degrees, according to Moody’s Investors Service.

Energy companies and ports are expected to withstand the effects of pandemic disruption compared to airports and toll road operators, the rating agency said in a recently released report.

The South Asian country suffered a devastating second wave as reported coronavirus cases rose sharply between February and early May. As a result, the hospitals were overwhelmed and medical supplies such as oxygen and medication were scarce.

While the central government was reluctant to issue another nationwide lockdown, as it did last year, state authorities tightened local restrictions – including regional lockdowns – to curb the spread of the virus.

“The lockdowns, along with changes in public behavior, are holding back economic activity and mobility, which will affect infrastructure companies in different ways,” said Abhishek Tyagi, vice president and senior credit officer at Moody’s, in a statement.

India’s regional lockdowns resulted in lower electricity demand as well as lower traffic for transportation companies. However, the availability of labor has not yet been significantly affected.

Here’s what Moody’s says about the country’s infrastructure companies:

power

The business models of rated utility companies enable them to handle the current decline in demand and withstand a moderate increase in the cash conversion cycle, which refers to the number of days it takes a company to convert its investments into cash flows from sales. This is because Indian power companies are dependent on state distribution companies, which are likely to find themselves in financial distress due to lower demand.

In the event that demand remains low for longer and there is a subsequent liquidity bottleneck, the electricity companies have good access to liquidity and support, according to Moody’s.

Airports and toll road operators

Moody’s believes that the recovery of Indian airports, some of which are undergoing debt-financed expansion plans, will be further dampened by the second wave and subsequent regional lockdowns. International travel is expected to take even longer to recover due to border closings.

Although domestic and international traffic will increase between October this year and March 2022 – the second half of India’s current fiscal year – Moody’s said the disruption caused by the second wave “will likely result in lower traffic and revenue in fiscal 2022, and potentially for fiscal 2023 compared to our previous projections. “

The rating agency downgraded Delhi International Airport to a B1 rating this month – which is viewed as speculative and high credit risk – and said the airport is likely to need additional debt to complete its expansion due to lower operating cash flow .

An increase in Covid vaccination rates in India could be an important driver for an airport recovery, according to Moody’s.

Prolonged restrictions on movement or repeated blocks will continue to have a negative impact on toll road operators and put their credit quality under pressure, according to the rating agency.

Ports

India’s rated ports performed well in the past financial year despite the economic downturn due to the pandemic and, according to Moody’s, were able to improve their market shares.

Port operators have remained largely unaffected by the regional lockdowns as “goods traffic has remained normal across the country and both ports also have sufficient buffers in their financial profiles to accommodate temporary disruptions,” Moody’s said.

Road to economic recovery

The daily reported Covid-19 cases in India have been on a downward trend since their peak in early May. As the situation gradually improves, many states are easing restrictions to reopen the economy, but experts are warning of an inevitable third wave of infections.

Moody’s pointed out that if vaccination rates are still relatively low, the risk of subsequent waves of infection remains open, which could lead states to introduce further bans.

“The government’s ability to contain the spread of the virus and significantly step up its vaccination campaign will have a direct impact on economic recovery,” the rating agency said.

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Health

Moody’s Analytics on Covid outbreaks in Asia, Fed fee hikes in 2023

Moody's Analytics on Covid outbreaks in Asia, Fed rate hikes in 2023

Asian countries need to tame the current waves of the coronavirus outbreak to prepare their economies for future rate hikes by the US Federal Reserve, an economist said Monday.

Fed officials said last week that rate hikes could happen as early as 2023, diverging from earlier comments in March that said the US Federal Reserve doesn’t expect a hike until at least 2024.

Higher US rates would attract overseas investors, and central banks in other countries may have to raise their own rates in defense. Raising interest rates could help countries prevent too much capital from leaving their economies, but increasing interest rates too quickly increases the risk of an economic slowdown.

“The Asian countries need to get Covid under control so that once the Federal Reserve starts raising interest rates, the economies here have an advantage and can make the transition,” said Steve Cochrane, chief economist for Asia-Pacific at Moody’s Analytics CNBC’s “Squawk Box Asia”.

Cochrane predicted that the US Federal Reserve could hike rates by 25 basis points once per quarter starting in 2023. The so-called dot plot of the expectations of individual Fed members indicated two rate hikes this year.

Asian countries need to get a grip on Covid so that as soon as the Federal Reserve raises interest rates, the economies have an advantage here and can also handle the transition.

Steve Cochrane

Chief Economist APAC, Moody’s Analytics

Many economies in Asia, including Japan, Taiwan and Malaysia, have seen a renewed spike in Covid cases in recent months – which has forced authorities to impose stricter social distancing measures. The new waves of infection come as vaccination progress in the region lags behind that in the US and Europe.

The World Bank said in a report this month that economic output in two-thirds of East Asian and Pacific countries will remain below pre-pandemic levels through 2022. Factors dampening potential economic growth in these countries include widespread Covid outbreaks and a collapse in global tourism, the bank said.

Cochrane noted that Covid outbreaks across the region are “stilling” domestic demand and keeping inflation moderate.

The economist said several Asian countries, including China, South Korea and Singapore, are stepping up Covid vaccinations. “It looks good, but it has to go on,” he said.

But other countries, including Thailand, Indonesia and the Philippines, have not effectively controlled the outbreak and do not yet have strong immunization programs, Cochrane added.

– CNBC’s Jeff Cox contributed to this report.

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World News

U.S. firms bearing the brunt of Trump’s China tariffs, says Moody’s

U.S. companies bearing the brunt of Trump's China tariffs, says Moody’s

A Chinese and US flag on a booth during the first China International Import Expo in Shanghai, November 6, 2018.

Johannes Eisele | AFP | Getty Images

American companies are bearing most of the cost burden from the increased tariffs introduced at the height of the US-China trade war, Moody’s Investors Service said.

The rating agency said in a report on Monday that US importers absorbed more than 90% of the additional costs resulting from the US 20% tariff on Chinese goods.

This means that US importers will pay around 18.5% more for a Chinese product subject to this 20% tariff, while Chinese exporters will get 1.5% less for the same product, according to the report.

If tariffs persist, pressure on US retailers is likely to increase, resulting in greater passage to consumer prices

Moody’s Investors Service

“Much of the customs charges have been passed on to US importers,” Moody’s said in the report.

“If tariffs stay in place, pressure on US retailers is likely to increase, leading to more swirling through to consumer prices,” the agency added.

During the tenure of former US President Donald Trump, higher trade tariffs came into force. Most of these tariffs have remained and affect more than half of all trade flows between the US and China, Moody’s said.

US tariffs on Chinese goods averaged 19.3% on a trade-weighted basis in early 2021, while Chinese tariffs on American products were around 20.7%, according to the think tank Peterson Institute for International Economics.

Before the US-China trade war in early 2018, US tariffs on Chinese goods averaged 3.1%, while Chinese tariffs on American goods averaged 8%.

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Business

AstraZeneca vaccine halt might gradual Asia’s financial restoration: Moody’s Analytics

AstraZeneca vaccine halt could slow Asia's economic recovery: Moody's Analytics

SINGAPORE – Asia’s economic recovery could slow as more countries stop using the Covid-19 vaccine developed by AstraZeneca and Oxford University, Moody’s Analytics chief Asia-Pacific economist warned.

“It slightly increases the risk Asia is playing in terms of global economic turnaround,” Steve Cochrane told CNBC’s “Squawk Box Asia” on Tuesday.

Reports of blood clots in some people who received the AstraZeneca Oxford shot resulted in several countries – many of them in Europe – temporarily stopping using the vaccine. The World Health Organization said there was no link between the shot and an increased risk of developing blood clots and is investigating this.

Impact of vaccines on world trade

Cochrane said issues related to the AstraZeneca-Oxford vaccine could affect world trade – and that’s bad news for Asia, where many economies are dependent on trading activities.

The vaccine is of course a risk. One of the critical risks is that vaccines will have to be introduced later this year to get the world economy back on its feet.

Steve Cochrane

Asia Pacific Chief Economist, Moody’s Analytics

“There is a possibility that world trade will be adversely affected if the introduction of vaccines in Europe is delayed. This would result in a more stalled economy in Europe. This could slow the pace of world trade.” ,” he explained.

Asian countries have contained the virus with relative success, and this has helped their economies recover faster than those in Europe and the US

Fortunately, re-locks in some parts of Europe haven’t affected manufacturing, Cochrane said. He added that “almost all” of the effects of these lockdowns have affected the service sector.

“So right now it’s not that big of a problem, and world trade still seems very, very strong,” said the economist. “The vaccine is, of course, a risk. It is one of the critical risks. We have yet to see how vaccines are introduced later this year to get the world economy back on its feet.”

Thailand briefly stops the AstraZeneca vaccine

Thailand temporarily stopped using the AstraZeneca-Oxford vaccine on Friday, but authorities said Monday they would continue to administer the shots.

Thai Prime Minister Prayuth Chan-ocha was the first in the country to receive the AstraZeneca-Oxford shot on Tuesday, Reuters reported.

Elsewhere in Asia, Indonesia on Monday said it would delay the rollout of the AstraZeneca-Oxford vaccine while awaiting review by the WHO, the news agency reported.

– CNBC’s Sam Meredith contributed to this report.